Economists: Malaysia’s wins against Covid-19 not paying economic dividends

With Covid-19 relatively contained in Malaysia, attention is beginning to turn to the economy that has been battered by months of various movement control orders since the unprecedented nationwide shutdown in March. — Picture by Ahmad Zamzahuri

KUALA LUMPUR, Aug 16 — Malaysia’s relative success in containing the Covid-19 pandemic still resulted in the worst economy of the region currently, according to a sombre analysis from Bloomberg’s economics team.

Commenting on the country’s record -17.1 per cent plunge in its second quarter’s economic output, they said external factors meant Malaysia’s campaign against the pandemic have led only to triumphs that were related to health of its citizens and not the economy.

They also noted that the decline came despite the Malaysian government’s decision to swiftly remove restrictions on businesses in an attempt to prevent systemic damage to the economy.

On Friday, Bank Negara Malaysia reported the country’s worst quarterly gross domestic product decline on record and revised its full-year growth estimate to -5.5 per cent, down from -2.0 per cent previously.

Factoring in last year’s 4.3 per cent growth, the 2020 projection represents an almost 10 per cent contraction of the Malaysian economy.

“Malaysia’s relative success at containing the Covid-19 outbreak hasn’t translated into economic performance. The country logged the largest year-on-year contraction in the region so far, despite less restrictive movement control measures.

“The slump in oil prices and political turmoil have been additional headwinds for investment, export receipts and the government’s response. We expect Bank Negara Malaysia to cut its policy rate by at least 25 bps at the next meeting in September,” Bloomberg’s Asean economist, Tamara Mast Henderson, said in a research note.

BNM has reduced the overnight policy rate four times already this year, with the latest cut last month bringing the key rate to just 1.75 per cent.

Others such as Fitch Solutions Country Risk and Industry Research have predicted that the central bank will cut the OPR further still in an attempt to jump-start the economy that was now in danger of entering a prolonged recession, to a low of 1.00 per cent before the year is out.

With Covid-19 relatively contained in Malaysia, attention is beginning to turn to the economy that has been battered by months of various movement control orders since the unprecedented nationwide shutdown in March.

However, an apparent resurgence in local Covid-19 infections could become a major obstacle to any planned recovery.

After a promising decline to the single-digit range between mid-June and July, new cases and clusters have begun creeping up again.

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